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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.

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Presentation on theme: "© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner."— Presentation transcript:

1 © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 3 Entrepreneurial Strategy: Generating and Exploiting New Entries McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2 3-2 Learning Objectives To understand that the essential act of entrepreneurship involves new entry To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry To understand how resources are involved in the generation of opportunities To be able to assess the attractiveness of a new entry opportunity

3 3-3 Learning Objectives To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty To be able to assess the extent of first-mover advantages and weigh them against first- mover disadvantages To understand that risk is associated with newness, but there are strategies that the entrepreneur can use to reduce risk

4 3-4 New Entry Includes: New product in an established or new market Established product in a new market A new organization Entrepreneurial strategy Set of decisions, actions, and reactions that generate, and exploit, a new entry over time

5 3-5 Figure Entrepreneurial Strategy: The Generation and Exploitation of New Entry Opportunities

6 3-6 Generation of a New Entry Opportunity Resources Inputs into the production process Source of competitive advantage Basic building blocks to a firm’s functioning Can be combined in different ways Provide capacity to achieve superior performance when they are: Valuable Rare Inimitable

7 3-7 Generation of a New Entry Opportunity Creating a resource bundle that is valuable, rare, and inimitable Entrepreneurial resource Ability to obtain, and recombine, resources into a bundle that is valuable, rare, and inimitable Drawn from the unique experiences and knowledge of the entrepreneurs Market knowledge Information, technology, know-how, and skills that provide insight into a market and its customers

8 3-8 Generation of a New Entry Opportunity Technological knowledge Provides insight into ways to create new knowledge Assessing the attractiveness of a new entry opportunity depends on: The level of information Willingness to make a decision without perfect information

9 3-9 Generation of a New Entry Opportunity Information on a new entry More knowledge ensures: Entrepreneur starts from a position of less ignorance Less time is spent on information search Window of opportunity: Favorable environment for entrepreneurs to exploit a new entry

10 3-10 Generation of a New Entry Opportunity Comfort with making a decision under uncertainty Likelihood that the window of opportunity will close leads to the dilemma of choosing between Error of commission: Negative outcome from acting on the perceived opportunity Error of omission: Negative outcome from not acting on the new entry opportunity

11 3-11 Figure The Decision to Exploit or Not to Exploit the New Entry Opportunity

12 3-12 Generation of a New Entry Opportunity Decision to exploit or not to exploit the new entry opportunity Assessment of a new entry’s attractiveness

13 3-13 Figure 3.3- Factors That Influence the Decision to Enter the Market Now or to Delay Entry

14 3-14 Entry Strategy for New Entry Exploitation Environmental instability and first-mover (dis)advantages Firm performance depends upon the fit between external environment and resources First movers are unaware of key success factors Emerging industries

15 3-15 Entry Strategy for New Entry Exploitation Demand uncertainty: Difficulty in estimating: Potential size, growth, and the key dimensions along which a market will grow Technological uncertainty: Difficulty in assessing whether: The technology will perform Alternate technologies will emerge and leapfrog over current technologies Adaptation Persistence and determination can inhibit the ability to adapt

16 3-16 Entry Strategy for New Entry Exploitation Customers’ uncertainty and first-mover (dis)advantages Uncertainty for customers Difficulty in accurately assessing whether the new product or service provides value Overcome customer uncertainty by: Informational advertising Highlighting product benefits over substitutes

17 3-17 Entry Strategy for New Entry Exploitation Creating a frame of reference for potential customers Educating customers through demonstration and documentation Lead time and first-mover (dis)advantages Lead time Grace period in which the first mover operates in the industry under conditions of limited competition

18 3-18 Entry Strategy for New Entry Exploitation Lead time can be extended by: Building customer loyalties Building switching costs Protecting product uniqueness Securing access to important sources of supply and distribution Switching costs: Must be borne by customers if they: Stop purchasing from the current supplier Begin purchasing from new supplier

19 3-19 Risk Reduction Strategies for New Entry Exploitation Risk Probability, and magnitude, of downside loss Derived from uncertainties over: Market demand Technological development Actions of competitors Strategies to reduce uncertainties Market-scope strategies Imitation strategies

20 3-20 Market Scope Strategies Scope: Choice about which customer groups to serve and how to serve them Narrow-scope strategy Offers small product range to a small number of customers to satisfy a particular need Focuses on: Producing customized products Localized business operations High level craftsmanship High-end of the market

21 3-21 Market Scope Strategies Broad-scope strategy Offers range of products across different market segments Helps gain better understanding of the whole market Opens the firm up to many different “fronts” of competition Reduces risks associated with market uncertainties Increases exposure to competition

22 3-22 Imitation Strategies Copying practices of other Advantages Help develop skills necessary to be successful in the industry Provide organizational legitimacy Reduce costs associated with R&D Reduce customer uncertainty over the firm Make the new entry look legitimate from day one

23 3-23 Imitation Strategies Types of imitation strategies Franchising Acquiring a “proven formula” for new entry from a franchisor “Me-too” strategy Copying exist products and attempting to build an advantage through minor variations

24 3-24 Risk Reduction Strategies for New Entry Exploitation Liabilities of newness Negative implications arising from an organization’s newness Arise from: Costs in learning new tasks Conflict arising from overlap or gaps in responsibilities Informal structures of communication

25 3-25 Risk Reduction Strategies for New Entry Exploitation Assets of newness Positive implications arising from an organization’s newness Learning advantage


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